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ABSTRACT: The purpose of the study was to establish non-governmental internal controls as a compliance
mechanism to financial regulations, taking the case of Amref Health Africa in Kenya. The study was guided by
the following objectives: to determine the relationship between monitoring and compliance to financial
regulation, establish the relationship between financial reporting and compliance to financial regulation, and
asses the relationship between auditing and compliance to financial regulation within Amref Health Africa in
Kenya. The study was conducted using cross sectional descriptive research design. Purposive sampling method
was used where the target population of 90 members of Amref Health Africa in Kenya drawn mainly from the
board of directors, line managers, finance and accounts, monitoring and evaluation, and information and
communication, from where 79 respondents participated in the study. A semi structured questionnaire was the
main instrument of data collection and the Statistical Package for Social Science (SPSS) was used for analysis.
Chi Square was used to test for the relationship, while Phi and Cramers value was used to test for the strength
of association. The findings showed that there is a positive relationship between internal controls and
monitoring, financial reporting and auditing to compliance with financial regulations. The study recommends
that the management innovates better ways of embracing continuous quality improvement for internal control
activities and regular systems audits to ensure loopholes in the system are sealed.
KEYWORDS: Internal Controls, Non-governmental Organizations, Financial Regulations, Monitoring,
Auditing, Financial reporting, Compliance, Kenya, Amref Health Africa.
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Non-Governmental Organization Internal Control as a Compliance Mechanism for Financial ..
ensure a good system, managers must hire competent personnel with integrity, train them so that they
understand their duties and responsibilities, and segregate certain responsibilities when it comes to handling
cash. Amudo further explains that effective internal control systems operate on the principle that no one person
should ever be placed in a position to carry out or conceal an error or irregularity without timely detection by
others in the normal course of carrying out their duties and responsibilities (Whittington & Pany, 2004).
Throughout the process, there should be free flow of communication in the form of training, awareness and
feedback. However, when a communication gap exists for any reason, sub optimization results with adverse
consequences (Cohen et al., 2002). Once in place, the control activities should be monitored and evaluated. This
can be accomplished through a combination of external audits, internal audits, and self-audits. The feedback
provided can be used to further improve the internal control systems (Goodwin-Stewart & Kent, 2006).
Compliance reporting is one of the pillars of internal controls and it entails specific reports in a
predetermined format that a granting agency may require (COSO, 2004). The financial governance and control
mechanism will be delivered through improved reporting. A 2007 survey (EIU) found that: 10% of directors
admitted to making important decisions on the basis of inadequate information and 46% agreed that going
through huge volumes of data impedes decision making while 56% are often concerned about poor choices
because of faulty, inaccurate or incomplete data. All employees are responsible for compliance with
organizational procedures.
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Non-Governmental Organization Internal Control as a Compliance Mechanism for Financial ..
financial records and management reports. Self-administered Questionnaires were distributed to the sampled
respondents through an existing group survey mail system. Data was analysed using descriptive statistics then
computed using the chi square test for categorical variables. Chi-square test of association was used to test for
relationships. A further Phi and Cramer's V test was used to measure the strength of association.
III. RESULTS
The study targeted a sample of 90 Amref Health Africa in Kenya staffs drawn from top and middle
level management that were basically care takers of the internal control out of which 79 responses were
obtained. This represented 88% of the response rate which is a reliable response rate for data analysis as Cooper
& Schindler (2003) argue that any response of 50% and above is adequate for analysis.
To be able to measure the strength of association, Phi and Cramer's V was used. From the results as indicated in
the Table 3.1.2, the strength of association between the variables was very strong (level of association= .315 to
.445). In this case, there is a very strong association between internal controls and adherence to monitoring
guidelines.
Table 3.1.2: Strength of association between monitoring and compliance to financial regulation
Symmetric Measures
Value Approx. Sig.
Nominal by Nominal Phi .445 .048
Cramer's V .315 .048
N of Valid Cases 79
To be able to measure the strength of association, Phi and Cramer's V were used. From the results as indicated
in the Table 3.2.2, the strength of association between the variables was very strong (level of association= .357
to .357). In this case, there was a very strong association between financial information reporting and
compliance to financial regulation.
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Table 3.2.2: Strength of association between financial reporting and compliance to financial regulation
Symmetric Measures
Value Approx. Sig.
Nominal by Nominal Phi .357 .004
Cramer's V .357 .004
N of Valid Cases 79
To be able to measure the strength of association, Phi and Cramer's V are used. The results table 3.3.2
indicated that the strength of association between the variables was very strong (level of association= .398 to
.398). This therefore means that there was a very strong association between periodic auditing of books of
accounts and financial statements and compliance to financial regulation.
Table 3.3.2: Strength of association between auditing and compliance to financial regulation
Symmetric Measures
Value Approx. Sig.
Nominal by Nominal Phi .398 .014
Cramer's V .398 .014
N of Valid Cases 79
IV. DISCUSSION
4.1 Monitoring and compliance to financial regulation
Monitoring involves systematic and routine collection of information from projects and programmes
for four main purposes: to learn from experiences to improve practices and activities in the future; to have
internal and external accountability of the resources used and the results obtained; to make informed decisions
on the future of the initiative; and to promote empowerment of beneficiaries of the initiative. Oyejide (2010)
asserts that managers are the link to the monitoring functions to ensure interests of stakeholders have been met.
However, if not properly done they might pursue their own interest at the expense of stakeholders and defraud
the company because of the weaknesses in the internal controls (Morris, 2011). Therefore, the organization
needs to employ experts to monitor the activities of the organization as stated by Gupta (2001) which is one of
the ways to address the agency conflict.
The findings showed the existence of a strong relationship between monitoring and compliance to
financial regulations. This is because of the implementation of the enterprise resource planning system that has
been implemented by the organization which has helped in monitoring of the project activities. This is in line
with what Baker (2005) reported, that the use of technology assists organizations in evaluation of their internal
control systems thus ensuring they are in compliance with applicable rules and regulations. Ultimately,
compliance with financial regulations is the responsibility of all employees within an organization. However,
commitment of leadership is a key factor in compliance according to Anthony (2005) as it is their responsibility
to set the standards of behaviour that need to be followed by all. Arguably then, frequent reviews of internal
controls and compliance policies will help improve compliance of financial regulations in the organization.
Monitoring and frequent audits will help in identifying the strengths and weaknesses in the system which will
ensure corrective measures are put in place on time to avoid losses. Miller (2003) notes that a weak internal
control leads to asset misappropriations, corruption, fraud and fraudulent financial statements, thus the need to
ensure that it is well designed and functioning properly to give reasonable assurance to the various stakeholders
(Wilhelm, 2006).
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V. CONCLUSION
The study provided reasonable assurance both to the stakeholders and management about the status of
the organizations internal control system. An effective internal control system supports transparency,
accountability, and good financial reporting systems which will ensure the organization is compliant with
financial regulations (Zabihollah, 2002). Based on the findings, it is evident that Amref Health Africa in Kenya
had effective internal control systems as supported by the study. However, implementation of internal controls
should be checked from time to time to ensure that it does not create an opportunity for projects to
underperform. Internal control needs to be simplified and made user friendly without compromising their
purpose in order to ensure there is efficiency and effectiveness during project implementation. It is the
managements responsibility to set and improve the internal controls which confirms the assertion by Treadway
commission of the committee of sponsoring organizations (COSO). The study shows that there is a significant
positive relationship between internal controls system with financial regulations. This confirms the findings of
Hughes (2003) that internal controls ensure a sound financial management leading to the organization achieving
its set goals. However, they are supposed to be monitored from time to time to ensure corrective measures have
been put in place and generally improve the system as the environment keeps on changing.
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VI. RECOMMENDATIONS
The findings revealed that there were strong internal control activities existing in Amref Health Africa
in Kenya. Bazzoil (2000) argued that if internal control activities are not implemented and designed properly, it
will not help in revealing financial and compliance risks which will then affect performance and productivity of
the organization. The study therefore recommends the need to strengthen the internal control activities by
adding an element of continuous quality improvement. The management should identify innovators and early
adapters of key internal control systems so that they can take a lead in rolling out to other staff members thus
ensuring compliance with financial regulations.
The study further recommends that in order to ensure internal control activities remain strong the
organization should employ staff that are competent in strategic planning, plan implementation, innovation, and
system assessment as they are seen to influence the design of internal controls which then affects compliance
with financial regulations. The management should set policies and systems and those in authority must adhere
to them hence ensuring targets are achieved without compromising the laid down financial regulations.
Furthermore, it should conduct system audits to ensure loopholes are picked early enough and adjustments made
to the system ensuring compliance with policies and procedures.
This study focused on internal controls as a compliance mechanism with financial regulations among
non-governmental organizations. There is limited study done on internal controls among non-governmental
organizations hence the need to research more on the effects of internal controls on financial performance
among non-governmental organizations and leadership and financial accountability among non-governmental
organizations.
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